Is Your Retirement Portfolio Making New Record Highs?

The credit meltdown of yesteryear ferociously ripped through the economy and decimated retirement accounts across Main Street. Millions of Americans felt the brute force of a stock market crash for the second time in only a decade. While the nation is left with the weakest economic recovery in history despite years of unprecedented intervention from central banks, some Americans are witnessing a rebound.

Investors who stayed in the market over the past five years are experiencing a wealth effect in their retirement portfolios. The average 401(k) balance grew to $89,300 in the fourth quarter of 2013, according to a new report from Fidelity, the nation’s largest 401(k) provider. That represents a 15.5 percent gain from one year earlier and a new record high. Since the stock market reached historic lows in March 2009, the average 401(k) balance has nearly doubled from only $46,200.

The most debated stock rally in history is largely responsible for the rebound in retirement accounts. Fidelity finds that 78 percent of the year-over-year gain is due to equity prices, while 22 percent of the growth is from employee and employer contributions, including company matches.

Investors with both a 401(k) and Individual Retirement Accounts (IRAs) were significantly better prepared for retirement. Those investors had a combined average balance of $261,400, up 16 percent from a year earlier. However, Fidelity also found that more than one-third of all participants cashed out their 401(k) balances when leaving/losing their job last year. This trend was most prevalent among younger participants ages 20 to 39, who have time on their side when investing but face backbreaking student debt and a weak job market.

“People with a 401(k) who change jobs have a critical decision to make: take the quick cash, or keep the balance in their existing plan or roll it over into another tax-advantaged account, two options that may provide them considerable income in retirement,” said James MacDonald, president of Workplace Investing at Fidelity, in a press release.

“Fidelity knows this decision isn’t easy,” he continued. “Everyone’s personal financial situation is different and there are times when a person must have access to cash. However, we urge all investors — especially young savers with years of potential investment gains — to keep their 401(k) savings working for them in a tax-advantaged retirement account when changing jobs.”

While the rebound in retirement portfolios is encouraging, many Americans are not enjoying the benefits. Gallup’s latest annual Economy and Finance survey found that only 52 percent of Americans are either personally — or along with a spouse — invested in the stock market. That is the worst reading since Gallup began the survey in 1998, and 13 percent lower than the peak of 65 percent made in 2007. After the dot-com bubble and the credit meltdown, it’s not too surprising that Americans are more skeptical than ever about stocks. In fact, only 37 percent of U.S. investors believe the stock market is an “excellent” or “good” strategy for average Americans to grow their assets.

It appears many investors are simply hiding out in cash, which carries its own risks, such as loss of purchasing power. A recent report from BlackRock finds that investors all of income levels in the United States held 48 percent of investable assets in cash. Holding some cash can provide an opportunity for future investments, but making it the foundation of an investment portfolio is dangerous over the long haul.